Lots of China property news today. Evergrande is going under. So are many of its mates. Dollar funding spreads are worsening again. Stimmies are exciting the market’s useful idiots but policymakers are holding the line.
Rather than recap it all, here is a solid take from TSLombard. It’s a little less bearish than I am but nicely captures the dynamics in play.
China’s property plan for this cycle is becoming more evident. Beijing is ramping up sector specific easing measures and providing broader support to the Chinese economy. As we expected, the November Plenum is proving a turning point: the PBoC and fiscal authorities have stepped up accommodative policies following the event. Credit conditions and consumer sentiment are improving. The nadir in developer funding is likely over for this cycle, but defaults are still probable and the sector will remain a large drag on activity both in 2022 and for years to come. Pre-sale completions and onshore creditors remain the priority; despite improved liquidity, equity and dollar debt holders are still at the back of the line. Beijing’s plan involves ‘three stabilizations’ and a break-up. For some weeks now, officials have been putting greater emphasis on stability first, specifically stabilizing land prices, home prices and expectations. The formulation is by no means new (it was used to cap excessively high prices) but has increasingly dominated official rhetoric, while easing policies have intensified to back the slogan. The break-up refers, of course, to Evergrande. By seeking to dismember the company (as we outline in detail here) rather than undertaking a large-scale bailout to save the developer, Beijing recognizes that the problems are endemic to the sector. After all, Evergrande would not be the only large developer asking for a handout.
